Nvidia Corporation NVDA has been stealing the spotlight with its impressive performance, leaving other stocks trailing behind. This has prompted many investors to get their hands on the Jensen Huang-led tech giant.
What Happened: Nvidia’s stock has skyrocketed by 149% this year, significantly outpacing the S&P 500 index’s 14.5% rise. Its products, vital for AI technology, have been a magnet for investors, leading to sales and profits exceeding Wall Street’s expectations for five consecutive quarters.
On the other hand, six out of 11 sectors within the S&P 500 index, including financials, energy, and industrials, saw a decline in the second quarter.
"We can't keep up because we don't own Nvidia," stated Max Wasserman, co-founder and senior portfolio manager at Miramar Capital, The Wall Street Journal reported on Monday.
"If you don't own that one stock, it really hurts. Every day feels like a root canal without novocaine."
Investors are bracing for market volatility in the second half of the year due to potential interest rate cuts by the Federal Reserve, the upcoming presidential election, and uncertainty surrounding corporate earnings growth.
Meanwhile, Nvidia, the S&P 500’s largest gainer last year, tripled in value over the past 12 months, reaching a market value of $3 trillion in June. The Magnificent Seven, which includes Nvidia along with Microsoft Corporation MSFT, Apple Inc. AAPL, Amazon.com Inc. AMZN, Meta Platforms Inc. META, Alphabet Inc. GOOGL, and Tesla Inc. TSLA, also accounted for 60% of the index's total return this year.
Investors are hence attracted to these big tech stocks as they are increasing their earnings faster than the rest of the market.
"It makes sense to me that we are packed into a lot of these AI plays because that's where people feel like there's secular growth," said Julie Biel, chief market strategist at Kayne Anderson Rudnick.
"Even if you do a great job in the rest of the portfolio, if you're not overweight in the same place, you're just toast."
However, high valuations have also left the chip maker little room for error.
"My guess is when Nvidia comes back to earth, it's going to come back quickly," said Brian James, managing partner and director of investments at Ullman Wealth Partners.
Why It Matters: Constellation Research founder and principal analyst Ray Wang predicted Nvidia’s stock to hit $200 per share in the next 12 months, citing the company’s stronghold in AI.
Nvidia’s stellar rise has also prompted analysts to draw parallels with the dotcom era boom when Cisco became one of the most valuable companies in the world by market capitalization.
However, some analysts have also taken a cautious approach towards Nvidia with Piper Sandler MD Craig Johnson warning that the company is in a “bubbl-ish territory.”
Image via Shutterstock
This story was generated using Benzinga Neuro and edited by Pooja Rajkumari
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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